NetEase (NTES) SWOT Analysis / TOWS Matrix / MBA Resources
Business Services
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for NetEase (United States)
Based on various researches at Oak Spring University , NetEase is operating in a macro-environment that has been destablized by – increasing household debt because of falling income levels, wage bills are increasing, technology disruption, increasing energy prices, cloud computing is disrupting traditional business models, geopolitical disruptions, competitive advantages are harder to sustain because of technology dispersion,
there is increasing trade war between United States & China, central banks are concerned over increasing inflation, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that NetEase can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the NetEase, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which NetEase operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of NetEase can be done for the following purposes –
1. Strategic planning of NetEase
2. Improving business portfolio management of NetEase
3. Assessing feasibility of the new initiative in United States
4. Making a Business Services sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of NetEase
Strengths of NetEase | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of NetEase are -
Diverse revenue streams
– NetEase is present in almost all the verticals within the Business Services industry. This has provided NetEase a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Successful track record of launching new products
– NetEase has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. NetEase has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Effective Research and Development (R&D)
– NetEase has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – NetEase staying ahead in the Business Services industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
High switching costs
– The high switching costs that NetEase has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Strong track record of project management in the Business Services industry
– NetEase is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Analytics focus
– NetEase is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Business Services industry. The technology infrastructure of United States is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Highly skilled collaborators
– NetEase has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Business Services industry. Secondly the value chain collaborators of NetEase have helped the firm to develop new products and bring them quickly to the marketplace.
Innovation driven organization
– NetEase is one of the most innovative firm in Business Services sector.
Cross disciplinary teams
– Horizontal connected teams at the NetEase are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Organizational Resilience of NetEase
– The covid-19 pandemic has put organizational resilience at the centre of everthing NetEase does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Learning organization
- NetEase is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at NetEase is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at NetEase emphasize – knowledge, initiative, and innovation.
High brand equity
– NetEase has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled NetEase to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Weaknesses of NetEase | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of NetEase are -
Workers concerns about automation
– As automation is fast increasing in the Business Services industry, NetEase needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Capital Spending Reduction
– Even during the low interest decade, NetEase has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Business Services industry using digital technology.
Employees’ less understanding of NetEase strategy
– From the outside it seems that the employees of NetEase don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Ability to respond to the competition
– As the decision making is very deliberative at NetEase, in the dynamic environment of Business Services industry it has struggled to respond to the nimble upstart competition. NetEase has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High cash cycle compare to competitors
NetEase has a high cash cycle compare to other players in the Business Services industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High dependence on NetEase ‘s star products
– The top 2 products and services of NetEase still accounts for major business revenue. This dependence on star products in Business Services industry has resulted into insufficient focus on developing new products, even though NetEase has relatively successful track record of launching new products.
Skills based hiring in Business Services industry
– The stress on hiring functional specialists at NetEase has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Slow to strategic competitive environment developments
– As NetEase is one of the leading players in the Business Services industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Business Services industry in last five years.
High operating costs
– Compare to the competitors, NetEase has high operating costs in the Business Services industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract NetEase lucrative customers.
No frontier risks strategy
– From the 10K / annual statement of NetEase, it seems that company is thinking out the frontier risks that can impact Business Services industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Increasing silos among functional specialists
– The organizational structure of NetEase is dominated by functional specialists. It is not different from other players in the Business Services industry, but NetEase needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help NetEase to focus more on services in the Business Services industry rather than just following the product oriented approach.
NetEase Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of NetEase are -
Building a culture of innovation
– managers at NetEase can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Business Services industry.
Learning at scale
– Online learning technologies has now opened space for NetEase to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help NetEase to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Creating value in data economy
– The success of analytics program of NetEase has opened avenues for new revenue streams for the organization in Business Services industry. This can help NetEase to build a more holistic ecosystem for NetEase products in the Business Services industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for NetEase in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Business Services industry, and it will provide faster access to the consumers.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Business Services industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. NetEase can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. NetEase can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Low interest rates
– Even though inflation is raising its head in most developed economies, NetEase can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, NetEase can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help NetEase to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Manufacturing automation
– NetEase can use the latest technology developments to improve its manufacturing and designing process in Business Services sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Developing new processes and practices
– NetEase can develop new processes and procedures in Business Services industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Leveraging digital technologies
– NetEase can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. NetEase can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for NetEase to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for NetEase to hire the very best people irrespective of their geographical location.
Threats NetEase External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of NetEase are -
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Easy access to finance
– Easy access to finance in Business Services industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. NetEase can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Stagnating economy with rate increase
– NetEase can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Business Services industry.
Technology acceleration in Forth Industrial Revolution
– NetEase has witnessed rapid integration of technology during Covid-19 in the Business Services industry. As one of the leading players in the industry, NetEase needs to keep up with the evolution of technology in the Business Services sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of NetEase.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, NetEase may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Business Services sector.
Shortening product life cycle
– it is one of the major threat that NetEase is facing in Business Services sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, NetEase can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate NetEase prominent markets.
Environmental challenges
– NetEase needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. NetEase can take advantage of this fund but it will also bring new competitors in the Business Services industry.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for NetEase in the Business Services sector and impact the bottomline of the organization.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. NetEase will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Regulatory challenges
– NetEase needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Business Services industry regulations.
Weighted SWOT Analysis of NetEase Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at NetEase needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of NetEase is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of NetEase is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of NetEase to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that NetEase needs to make to build a sustainable competitive advantage.